News

USIS Washington 
File

21 April 1998

$300 MILLION IN SPARE PARTS RECOMMENDED FOR IRAQ'S OIL INDUSTRY

(Experts say Iraq's oil industry is in "lamentable" state) (750)

By Judy Aita

USIA United Nations Correspondent



United Nations -- Saying "the oil industry of Iraq is in a lamentable
state," oil experts sent to Iraq by the United Nations to evaluate its
capacity to pump oil have reported that Iraq cannot pump enough oil to
meet the levels the Security Council has authorized to purchase
humanitarian goods.


According to the group of experts, "should the current average price
of $10.50 per barrel for Iraq crude oil remain unchanged, based on the
existing export capacity of 1.6 million barrels per day, revenues only
in the amount of $3,000 million could be achieved during a 180-day
period, starting in June 1998, provided the spare parts required are
ordered immediately."


In February, the Security Council increased the amount of oil Iraq was
allowed to export in order to buy humanitarian supplies to $5,256
million from $2,000 million.


Iraq had informed the U.N. that it has no objection to increasing
revenues but the poor state of its oil industry combined with the low
oil prices made it impossible for its oil industry to meet the quota.
Oil prices have dropped from $18 a barrel to about $10.50 a barrel for
Iraqi crude. To receive the money allotted by the council an average
oil price would have to be $16.90 per barrel.


Baghdad said that even assuming that spare parts were available and
repairs were made, it would only be able to produce between $3,500 and
$4,000 million of oil.


The United Nations team of oil experts visited Iraq from March 12 to
22 to determine whether Iraq was capable of producing the increased
amount of oil in the 180-day time limit.


As a result of the report, Secretary General Kofi Annan has
recommended the Security Council allow Iraq to import $300 million of
the equipment needed to increase oil production. He said Iraq would
probably only be able to export $4,000 million of oil in the 180-day
period.


Annan also suggested the council allow the U.N. oil overseers to
approve the spare parts contracts after the sanctions committee has
reviewed the list of parts in order to speed up the process.


The Security Council is currently reviewing the secretary general's
request.


In its report, the group of experts said Iraq's developed oil fields
"have had their productivity seriously reduced, some irreparably,
during the last two decades."


"The oil processing and treatment facilities, refineries and storage
terminals in the country have been severely damaged and continue to
deteriorate. This deterioration, particularly in the oil fields, will
accelerate until significant action is taken to contain and relieve
the problems," the report said.


The experts warned that without spending money on spare parts and
equipment, "a sharp increase in production ... would severely damage
oil-containing rocks, and pipeline systems, and would be against
accepted principles of 'good oil field husbandry.'"


The transportation system and intermediary storage facilities need
repair at critical points, the experts said. "Significant issues are
the degradation of the 40-inch pipeline, major losses in pumping
capability and reduced intermediary storage capacity in the north,
with identical problems in the south."


The experts estimated that if the spare parts are ordered immediately,
during the 180-day period beginning in December 1998 Iraq could export
1.7 million barrels a day, generating $3,900 million based on a price
of $12.50 per barrel.


The condition of the working refineries in Iraq "in general is indeed
poor," the experts said. "Significant pollution and environmental
damage has also been noted."


While Iraq's oil industry workers have the expertise and technical
knowledge to gradually increase production over the next 18 months,
they said, "without rapid and adequate investment in spare parts and
repair of the production wells, plus the development of a number of
smaller fields, the gap between the existing decline curve and the
projected increments in crude oil production will grow wider each
month that financing is delayed."


The experts also said it is not possible to accurately verify
production figures "as the oil industry in Iraq has no functioning
internal monitoring system in operation. Wellhead production is not
measured, movement between terminals is only estimated or based on
non-calibrated meters and/or storage tanks, and the whole operation is
operating close to collapse," they said.